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JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY

Takeaway: Claims helped by a missing state, but the trend lower remains in place. Dual tailwinds (claims & housing) remain the key Financials drivers.

***The following note comes from our Financials team led by Managing Director Josh Steiner. If you aren't yet receiving their work on the space, including their seminal work on the U.S. housing market, please email if you're interested in setting up a trial.***

 

 

Our Take: Initial claims fell 28k last week to 339k (but fell 30k after a 2k upward revision to the prior week's data). Rolling claims fell 11.5k WoW to 364k. On a non-seasonally adjusted basis, claims rose 26k. News reports are indicating that one "large" state was excluded from this week's jobless claims report, explaining much of the WoW improvement. It's inclusion next week should see the series revert higher. That said, claims are still trending lower, driven by the seasonality dynamics we've often highlighted (see first chart below for detail). 

 

We follow claims and housing closely. Our basic thesis on capital-intensive Financial Services companies is that credit is always the most important swing factor, and the best leading indicators for credit's frequency and severity components are jobless claims (newly unemployed people are what drive new losses) and home prices (this is the primary collateral, hence it's relevance to severity). 

 

Aside from the seasonality component, which will remain a tailwind through February 2013, we like to cut through the noise by looking at the YoY change in the rolling NSA series. Again, largely attributable to the data anomaly of the missing state, there was a large improvement in YoY rolling NSA. The series improved sequentially from -7.4% to -10.3%. 

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 1

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 2

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 3

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 4

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 5

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 6

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 7

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 8
 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 9

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY  - 10

 

Joshua Steiner, CFA

 

Robert Belsky


JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY

Takeaway: Claims helped by a missing state, but the trend lower remains in place. Dual tailwinds (claims & housing) remain the key Financials drivers.

Our Take: Initial claims fell 28k last week to 339k (but fell 30k after a 2k upward revision to the prior week's data). Rolling claims fell 11.5k WoW to 364k. On a non-seasonally adjusted basis, claims rose 26k. News reports are indicating that one "large" state was excluded from this week's jobless claims report, explaining much of the WoW improvement. It's inclusion next week should see the series revert higher. That said, claims are still trending lower, driven by the seasonality dynamics we've often highlighted (see first chart below for detail). 

 

We follow claims and housing closely. Our basic thesis on capital-intensive Financial Services companies is that credit is always the most important swing factor, and the best leading indicators for credit's frequency and severity components are jobless claims (newly unemployed people are what drive new losses) and home prices (this is the primary collateral, hence it's relevance to severity). 

 

Aside from the seasonality component, which will remain a tailwind through February 2013, we like to cut through the noise by looking at the YoY change in the rolling NSA series. Again, largely attributable to the data anomaly of the missing state, there was a large improvement in YoY rolling NSA. The series improved sequentially from -7.4% to -10.3%. 

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Seasonality

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Raw

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Rolling

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - NSA

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - NSA rolling

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - S P

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Fed

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - YoY NSA claims

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Recessions

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Rolling Linear

 

Yield Spreads

The 2-10 spread rose 3 bps WoW. 4QTD, the 2-10 spread is averaging 1.43%, which is up 6 bps basis vs 3Q12.  

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - 2 10 spread

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - 2 10 spread QoQ

 

Financial Subsector Performance

The table below shows the stock performance of each Financial subsector over multiple durations. 

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Subsector performance

 

JOBLESS CLAIMS: DUAL TAILWINDS FROM FREQUENCY AND SEVERITY - Companies

 

Joshua Steiner, CFA

 

Robert Belsky

 

Having trouble viewing the charts in this email?  Please click the link at the bottom of the note to view in your browser.  


Buying On The Dip

BUYING ON THE DIP

 

 

CLIENT TALKING POINTS

 

BUYING ON THE DIP

We go through a risk management process on a daily basis. We look at the market and make our decisions based on what it has done. Apple (AAPL) was oversold, so we bought Tech (XLK). Utilities (XLU) have been one of the top performers since the Bernanke top, so we bought that as well. And we bought one more asset class that’s correlated to the US dollar - see below for that one.

 

 

GOLDENEYE

We’ll leave James Bond be for now, as we’re more interested in the precious metal itself. We bought gold in the Real-Time Alerts yesterday because the US dollar signaled it was immediate-term TRADE overbought. That means we think the USD is ready to make a move to the downside. Dollar down, gold up. It’s pretty simple. Get the dollar right, you get other things right. The name of the game is correlation.

 

_______________________________________________________

 

ASSET ALLOCATION

 

Cash:                DOWN

 

U.S. Equities:   UP

 

Int'l Equities:   Flat   

 

Commodities: Flat

 

Fixed Income:  DOWN

 

Int'l Currencies: Flat  

 

 

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TOP LONG IDEAS

 

BRINKER INTL (EAT)

Remains our top long in casual dining as new sales layers (pizza) and strong-performing remodels (~5% comps) should maintain sales momentum. The company is continuing to enhance returns for shareholders through share buybacks . The stock trades at a discount to DIN (7.7x vs 9.3x EV/EBITDA) and in line with the group at 7.3x.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG            

 

PACCAR (PCAR)

Emissions regulations in the US focusing on greenhouse gases should end the disruptive pre-buy cycle and allow PCAR to improve margins. Improved capacity utilization, truck fleet aging, and less volatile used truck prices all should support higher long-run profitability. In the near-term, Paccar may benefit from engine certification issues at Navistar, allowing it to gain market share. Longer-term, Paccar enjos a strong position in a structurally advantaged industry and an attractive valuation.

  • TRADE:  LONG
  • TREND:  LONG
  • TAIL:      LONG

 

HCA HOLDINGS (HCA)

While political and reimbursement risk will remain near-term concerns, on the fundamental side we continue to expect accelerating outpatient growth alongside further strength in pricing as acuity improves thru 1Q13. Flu trends may provide an incremental benefit on the quarter and our expectation for a birth recovery should support patient surgery growth over the intermediate term. Supply costs should remain a source of topline & earnings upside going forward.

  • TRADE:  NEUTRAL
  • TREND:  LONG
  • TAIL:      LONG

  

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THREE FOR THE ROAD

 

TWEET OF THE DAY

“these Las Vegas Strip numbers are even worse than the down 1% would indicate. high margin slot revs down 9%. bad for $MGM” -@HedgeyeSnakeye

 

 

QUOTE OF THE DAY

“No one means all he says, and yet very few say all they mean, for words are slippery and thought is viscous.” -Henry Adams

                       

 

STAT OF THE DAY

Greek unemployment rate hits record high of 25.1% in July

 

 

 


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WHAT HAPPENED TO THE FAVORABLE CALENDAR?

Takeaway: September is coming in pretty weak almost across the board for domestic gaming despite an extra weekend.

Down a Friday but up a Saturday and Sunday, we would’ve expected a 2-4% calendar boost.  Yet, out of the six states that have released September gaming revenues, only Illinois – yes, Illinois – posted same-store revenue growth.  Pennsylvania managed to eke out total gaming revenue growth but same-store growth in that market was negative.  What’s going on?

 

WHAT HAPPENED TO THE FAVORABLE CALENDAR? - chart1

 

Clearly, consumers are stretched but gaming seems to be underperforming other consumer sectors.  We would argue that trends are sequentially getting worse. See chart below.  Adjusted for seasonality, July and August were worse than the trend projected, and September looks like more of the same. 

 

WHAT HAPPENED TO THE FAVORABLE CALENDAR? - chart2

 

Clearly there is more going on than just a soft consumer.  Here are some additional factors acutely impacting the gaming sector:

  • New competition and market saturation – We’ve seen same-store revenues suffer hits from new properties, indicative of market saturation.  New casinos in Ohio, PA, and Missouri are probably having an impact
  • Gas prices – We’ve shown statistically that higher gas prices negatively impact regional gaming revenues
  • Higher slot hold have masked lower volumes – Slot hold percentage has been on a consistent uptrend for years.  We think higher “pricing” is unsustainable.  Volumes have been under pressure for years.
  • Younger generations not playing slots – We’ve shown that the average age of the slot player continues to increase among other discouraging demographic trends.  The fact is, the post baby boomer generations are not playing slots.  This is a problem longer-term but may be impacting slot play currently.
  • Gaming is more discretionary than other consumer sectors

September probably needed to be a strong month for most of the regional gaming companies to make their Q3 earnings.  It doesn’t look like it materialized so there is near-term earnings risk.  We will be putting out earnings previews over the next week and we expect to be below consensus for most of the regional gaming companies.


THE M3: MGM HK SUIT

The Macau Metro Monitor, October 11, 2012

 

 

MGM CHINA WINS DEBT SUIT AGAINST HK BUSINESSMAN Macau Business

A Hong Kong court sided with MGM Grand Paradise, a subsidiary of MGM China, in a lawsuit over a gaming debt of HK$9.3 million (US$1.2 million) incurred by Chiu Tak Wah, a director of HK-based Richful International Investment Ltd.  Chiu had received a line of credit of HK$10 million and spent HK$9.3 million gambling but he did not pay back the loan.  When MGM resorted to the Hong Kong courts to get the money back, Chiu appealed, arguing that Macau would be the appropriate forum for the proceeding.  According to the judgment handed out on Monday, judges stressed that the businessman “himself has agreed that the loan agreement may be enforced by the plaintiff in the jurisdiction where his assets may be found.”


THE HEDGEYE DAILY OUTLOOK

TODAY’S S&P 500 SET-UP – October 11, 2012


As we look at today’s set up for the S&P 500, the range is 19 points or -0.25% downside to 1429 and 1.08% upside to 1448. 

                                            

SECTOR AND GLOBAL PERFORMANCE


THE HEDGEYE DAILY OUTLOOK - 1

 

THE HEDGEYE DAILY OUTLOOK - 2

 

THE HEDGEYE DAILY OUTLOOK - 3

 

THE HEDGEYE DAILY OUTLOOK - 9

 

 

EQUITY SENTIMENT:

  • ADVANCE/DECLINE LINE: on 10/10 NYSE -737
    • Increase versus the prior day’s trading of -1639
  • VOLUME: on 10/10 NYSE 590.82
    • Decrease versus prior day’s trading of -3.54%
  • VIX:  as of 10/10 was at 16.29
    • Decrease versus most recent day’s trading of -0.49%
    • Year-to-date decrease of -30.38%
  • SPX PUT/CALL RATIO: as of 10/10 closed at 1.67
    • Down from the day prior at 2.35

CREDIT/ECONOMIC MARKET LOOK:

  • TED SPREAD: as of this morning 24.62
  • 3-MONTH T-BILL YIELD: as of this morning 0.09%
  • 10-Year: as of this morning 1.69%
    • Increase from prior day’s trading of 1.67%
  • YIELD CURVE: as of this morning 1.43
    • Up from prior day’s trading at 1.41

MACRO DATA POINTS (Bloomberg Estimates)

  • 8:30am: Import Price Index M/m, Sept., est. 0.7%
  • 8:30am: Trade Deficit, Aug. est. -$44b (prior -$42b)
  • 8:30am: Initial Jobless Claims, Oct. 6  est. 370k
  • 8:30am: WASDE crop statistics
  • 9:45am: Bloomberg Consumer Comfort, Oct. 7 (prior -36.9)
  • 10am: Bloomberg U.S. Economic Survey for Oct.
  • 10am: Fed’s Stein speaks on monetary policy in Washington
  • 10am: Freddie Mac mortgage rates
  • 10:30am: EIA natural gas storage change
  • 11am: DoE energy inventory statistics
  • 11am: Fed to buy $750m-$1.25b notes due 1/15/2019-2/15/2042
  • 11am: U.S. announces plans for 30-yr TIPS auction
  • 11:15am: Fed’s Raskin speaks on gender equality panel in France
  • 12:30pm: Fed’s Plosser speaks on economy in Pennsylvania
  • 1pm: U.S. to sell $13b 30-yr bonds in reopening
  • 2pm: Tentative release time for budget statement for end of fiscal 2012
  • 6pm: Fed’s Bullard meets with reporters in St. Louis

 GOVERNMENT:

    • SEC holds a closed meeting in enforcement matters, 2pm
    • U.S.-China Economic and Security Review Commission begin two-day  meeting to prepare 2012 annual report to Congress. Agenda includes: trade and economic relationship, 9am
    • Commerce Dept., International Trade Administration meet to discuss environmental technologies trade policies, 9am
    • Former Treasury Secretary Lawrence Summers speaks at Center for American Progress, 1:30pm
    • Energy and Cleantech Conference, with speakers including Green Mountain Energy Co. CEO James Steffes, 9:30am
    • NASA conference call w/ Curiosity updates, 2pm

WHAT TO WATCH:

  • Spain debt is downgraded to one level above junk by S&P
  • U.S. trade gap probably widened in Aug. on higher crude prices
  • Korea joins Brazil cutting interest rates as global economic growth slows
  • AIA to buy ING’s Malaysian insurance unit for $1.73b cash
  • Japan machinery orders slide 3.3% as economy risks shrinking
  • Treasuries hold gains before U.S. trade data, 30y debt auction
  • JPMorgan CFO Braunstein said to weigh return to investment bank
  • United Tech unit says orders for new turbo-fan engine may double
  • Hewlett-Packard overtaken by Lenovo as world’s top PC maker
  • Chamber, 2 oil trade groups sue SEC over foreign payment rule
  • Apollo’s Realogy IPO raises $1.08b pricing at top end
  • Telsa gets $10m California grant for electric SUV project
  • Goldman doesn’t need more deposit funding: COO Cohn

EARNINGS:

    • Fastenal (FAST) 7am, $0.37 - Preview
    • Safeway (SWY) 9am, $0.43 - Preview
    • Novagold (NG CN) Before-mkt, C$(0.06)
    • JB Hunt Transportation Services (JBHT) 4pm, $0.66
    • Bank of the Ozarks (OZRK) 6pm, $0.55

COMMODITY/GROWTH EXPECTATION (HEADLINES FROM BLOOMBERG)

 

GOLD – bought it yesterday as the USD (up on Romney mo and Europe slow) is immediate-term TRADE overbought; any let down in USD strength gets the momentum trade back into commodities and stocks. Correlations are surreal. Risk range in Gold is now 1.

  • Oil Rises as Mideast Tensions Outweigh Forecast of Rising Supply
  • Lead Tops Metal Returns as Shortages Set to Emerge: Commodities
  • Bakries Offer to End Rothschild Bumi Dispute by Acquiring Assets
  • Gold Gains on Renewed Europe Debt Concern After Spain Downgrade
  • Copper Advances as Brazil and South Korea Cut Interest Rates
  • Soybeans May Climb 10% on Rising Trendline: Technical Analysis
  • Robusta Coffee Extends Rally Before Options Expiry; Sugar Drops
  • Record Gas Switching Cuts Glut as Mizuho Sees $4: Energy Markets
  • Iron-Ore Swaps Extend Decline as Chinese Buying Seen Weakening
  • Food Industry Vulnerable to Future Corn, Rice Supply Disruptions
  • Aluminum Stockpiles in Japan Expand to 8-Month High in September
  • Commodity Head and Shoulders Means 13% Drop: Technical Analysis
  • Disputed Islands With 45 Years of Oil Split China, Japan: Energy
  • Soybeans Climb on Signs Demand Is Building as U.S. Supply Gains

THE HEDGEYE DAILY OUTLOOK - 4

 

 

CURRENCIES

 

THE HEDGEYE DAILY OUTLOOK - 5

 

 

EUROPEAN MARKETS


SPAIN – finally getting an immediate-term TRADE oversold signal on the IBEX here this morn at 7609 on a very newsy Spanish downgrade; all this means is that they ask for the bailout sooner; sadly, that’s a bullish short-term catalyst, so just keep that in mind as EUR/USD holds $1.28 TRADE support.

 

THE HEDGEYE DAILY OUTLOOK - 6

 

 

ASIAN MARKETS


KOSPI – down another -0.8% overnight and broken on our TRADE duration isn’t new news this morning – it’s a leading indicator; South Korea cutting rates by another 25bps to 2.75% and the market not going up is new; you can have 10,000 global easings but, at a pt, the earnings cycle trumps the funny money – just like Q407-Q308.

 

THE HEDGEYE DAILY OUTLOOK - 7

 

 

MIDDLE EAST


THE HEDGEYE DAILY OUTLOOK - 8

 

 

 

The Hedgeye Macro Team

 

 

 

 

 


Hedgeye Statistics

The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.

  • LONG SIGNALS 80.30%
  • SHORT SIGNALS 78.51%
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